Consumer discretionary sector: choice of the pound sterling for 2022
With 2022 in full swing, it stands to reason that, as the pandemic no longer imposes the full burden it once imposed, consumer discretionary spending will increase. After all, non-essential products and services will become fashionable again, right? (Aren’t we beyond just needing toilet paper?)
The consumer discretionary sector benefits when people feel more free to spend money or feel they have more money to spend. So what types of products and businesses are showing promise in 2022 and how should you invest?
Let’s find out.
What is the consumer discretionary sector?
First, what is the consumer discretionary sector? The consumer discretionary sector is made up of businesses that sell products and services deemed “non-essential” – those that consumers do not sell have to buy. They are different from basic consumer goods – this sector includes products like food, beverages and, yes, toilet paper – things that consumers tend to buy no matter how good or bad the economy is. .
Here’s an example: you don’t really need diamond earrings or new vehicles. You can probably make do with your old gold studs or your used vehicle if you absolutely need it.
What makes up the consumer discretionary sector?
Within the consumer discretionary sector, there are various groupings of businesses for which demand can drop quickly when consumers do not need it. Here is a quick list of the industries that make up the sector: automotive, distribution industry, diversified consumer services, hotels and restaurants, durable household goods, internet and catalog retail, leisure, media, retail and luxury goods (including apparel). Let’s take a look at a slice of options in the sector, plus a stock or two to consider for your own portfolio.
The automotive industry, a highly cyclical industry, includes the design, manufacture, repair and maintenance of automobiles. What does it mean? You get it – high volatility profit margins, not to mention fluctuating costs, even due to raw materials like copper and steel.
Ambarella Inc. (NASDAQ: AMBA)
Ambarella Inc., headquartered in Santa Clara, California, develops and sells video compression, image processing and computer vision solutions. The company creates and sells computers and software for use in security cameras, automotive cameras, industrial and robotics applications, and consumer applications. You will find Ambarella applications in Tesla (NASDAQ:TSLA) self-driving system. Ambarella posted earnings of $92.2 million in the third quarter of fiscal 2021, up 64% from $56.1 million in the same period of fiscal 2020.
Hotels and restaurants
When it comes to hotels and restaurants, you can bet it’s one of the first things to do when the economy is sluggish. While it’s true that hoteliers have long been ready for a slow and steady recovery from COVID-19 that will likely last longer than after the Great Recession, you can still find diamonds in the rough, especially with some corrections underway. . the pipeline.
The ONE Group Hospitality Inc. (NASDAQ: STKS)
The ONE Group Hospitality Inc., based in Denver, Colorado, develops, owns and operates restaurants and lounges such as STK, Kona Grill and ONE Hospitality. The company operates other brands and venue concepts like ANGEL, Bagatelle, Heliot, Hideout, Marconi and Radio.
Financial highlights for the third quarter compared to the same period last year included an increase in GAAP revenue of 81.6% to $71.9 million from $39.6 million, GAAP net income of 11 $.7 million or net earnings per share of $0.34, compared to a GAAP net loss of $0.9 million in 2020.
Durable household goods
At first glance, it may not be obvious what household durable goods are. Think of them as infrequently purchased products, such as lawn care equipment, furniture, appliances, and other types of products that might drop during a down market.
Purple Innovation (NASDAQ: PRPL)
Purple Innovation Inc., headquartered in Lehi, Utah, designs and manufactures comfort technology products such as bamboo mattresses, pillows, seat cushions, mattress protectors and sheets .
The manufacturing backlog slowed production at Purple, which saw net revenue decline 8.7% to $170.8 million from 2020 and increase 45.5% from 2019. Wholesale revenue increased 9.6% from 2020 and 17.1% from 2019 and direct-to-consumer revenue decreased by 15.9. %. Gross profit was 35.8%, compared to 47.2% in 2020 and 45.0% in 2019. However, the company will grow to 270 new wholesale doors and increase its footprint.
Online and catalog retail
Naturally, this consumer discretionary section has grown with the rise of the internet during the pandemic. It includes mail-order and door-to-door retailers, home shopping retailers and Internet service companies. These companies do not offer physical locations.
Booking Holdings Inc. (NASDAQ: BKNG)
Booking Holdings Inc. provides online travel and restaurant reservations and related services. It connects consumers with travel service providers around the world, including hotels, bed and breakfasts, hostels, apartments, vacation rentals and other properties through Booking.com, priceline.com , agoda.com, KAYAK, Rentalcars.com and OpenTable. Inc.
Booking Holdings’ total revenue for the third quarter of 2021 was $4.7 billion, a 77% increase from the prior year quarter. Net income was $769 million, down 4% from the prior year quarter. Non-GAAP net income in Q3 2021 was $1.6 billion.
Leisure products refer to various types of leisure activities — sports, outdoor activities (such as camping equipment) and toys, for example.
Winnebago Industries Inc., headquartered in Forest City, Iowa, designs, develops and sells recreational products, including its Grand Design towables, Winnebago towables, Winnebago motorhomes, Newmar motorhomes, Chris-Craft marine and Winnebago specialty vehicles.
At the end of November, revenue for the first quarter of fiscal 2022 reached a record $1.2 billion, an increase of 45.7% compared to $793.1 million for fiscal 2021. This represents a organic growth rate of 37.5% over the prior year period due to strong consumer demand and price increases related to material costs.
Ready to pursue the consumer discretionary sector?
While you may need to choose among the right consumer discretionary stocks for your portfolio, it’s worth considering this sector for buys and tops in 2022.